Part 1 Coal-fired power stations in Africa: when policies and practicalities don’t stack up – A Changing Landscape

In a three part series, we discuss the practicalities and policy surrounding the use of coal-fired power stations in Africa. In the first post, we explore the changing landscape of coal-fired power.

The landscape of coal-fired power generation has evolved remarkably over the past 5 years. According to figures compiled by the Natural Resources Defense Council, multilateral development bank financing for coal-fired power plants stood at $1.5 billion between 2011 and 2014, compared with $12.2 billion in the previous four-year period. As multilateral financial institutions (MFIs) and world governments alike re-calibrate their policy settings in order to induce clean energy investment and discourage carbon-intensive energy production, the policy of commercial banks with respect to the funding of coal-fired power plants has increasingly followed suit.

In 2013 alone, commercial banks ploughed $88 billion into coal-fired power projects around the world. This has led to increased public scrutiny, as attention has been focused on ensuring the private sector is equally accountable and committed to a clean energy future. In the past two years, at least 11 commercial banks have banned coal mining from their lending portfolios as financing coal projects is increasingly at odds with domestic policy settings, and 18 of the world’s largest institutional investors have divested from coal mining and coal-fired power plants. On the basis of 2014 statistics, 4 of the 5 largest private lenders in the coal industry were Chinese banks.

We have also seen the conclusion of the widely proclaimed Paris Agreement that followed the COP21 Conference at the end of 2015. At the OECD level, breakthrough commitments, which will greatly limit the ability of export credit agencies to fund carbon-intensive energy projects, were concluded in early 2016.

Whilst the impact of this in practice remains to be seen, will it really be the case that the transition to a low-carbon global economy is allowed to jeopardise equally important social development objectives by restricting access to finance for nations who remain heavily reliant on coal-fired power energy sources?

Opinion is divided. Asian Development Bank modelling suggests that coal will continue to be a major, primary source of energy, with a share of approximately 29 per cent of global energy production in 2030. This 2030 date also coincides with China’s anticipated peak carbon emissions levels.

Japan is said to be considering nearly $10 billion of future coal-related project funding, predominantly in the fledgling South African and Myanmarese markets, through its agency for international development, the Japan Bank for International Cooperation. Similarly, Germany is also considering projects in South Africa, as well as in Croatia and Russia.

In Part 2 we discuss energy demand in Africa.

Inside Africa would like to thank Tim Baines, Of Counsel and Benjamin Carrozzi, Associate, for their contribution to this blog post.

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Africa is as dynamic a market as it is diverse. We understand that changes impacting your business can arise rapidly and vary significantly across the continent.

Our understanding of Africa’s markets stems from extensive experience on the ground. Through our Inside Africa blog, we aim to apply this insight to provide you with timely commentary on the latest developments across Africa, as well as insight into the many nations that make up this vast continent.